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The ERTC is refundable credit that most businesses can claim on qualified wages, including certain health insurance costs, paid to employees.
Businesses can no longer pay wages to claim the Employee Retention Tax Credit, but they have until 2024, and in some instances 2025, to do a look back on their payroll during the pandemic and retroactively claim the credit by filing an amended tax return.
Although the Employee Retention Tax Credit (ERTC) program has officially sunset, this does not impact the ability of a business to claim ERTC retroactively.
In addition, several laws have gone into effect since the inception of the ERTC program that impact how the credit can be claimed.
Who qualifies for ERTC
Most employers, including colleges, universities, hospitals and 501(c) organizations following the enactment of the American Rescue Plan Act, could qualify for the credit. Previously, the Consolidated Appropriations Act expanded qualifications to include businesses who took a loan under the Paycheck Protection Program (PPP), including borrowers from the initial round of PPP who originally were ineligible to claim the tax credit.
Qualification is determined by one of two factors for eligible employers — and one of these factors must apply in the calendar quarter the employer wishes to utilize the credit:
1. A trade or business that was fully or partially suspended or had to reduce business hours due to a government order. The credit applies only for the portion of the quarter the business is suspended, not the entire quarter.
Some businesses, based on IRS guidance, generally do not meet this factor test and would not qualify.
Those considered essential, unless they have supply of critical material/goods disrupted in manner that affects their ability to continue to operate.
Businesses shuttered but able to continue their operations largely intact through telework.
However, any of these businesses still may qualify for the credit with the second factor test.
2. An employer that has a significant decline in gross receipts.
The IRS released Revenue Procedure 2021-33 in Aug. 2021 that provides a safe harbor under which an employer may exclude the amount of the forgiveness of a PPP loan and the amount of a Shuttered Venue Operators Grant or a Restaurant Revitalization Fund grant from the definition of gross receipts solely for the purpose of determining eligibility to claim the ERTC. Employers must apply the safe harbor consistently across all entities.